Does a Bulgarian company need to invoice and pay VAT when it is providing services to a company registered in Switzerland?
Many of our clients are providing service to Swiss companies. And they are often confused as to whether they should invoice VAT (value added tax) to these services.
The place of the transaction – essential for VAT
Here is what the Bulgarian VAT Law states:
The place of the transaction for the supply of a service, when the recipient is a taxable person (eg: a company), is the place where the recipient has established his independent economic activity. When these services are provided to a permanent establishment located in a place other than the place where the recipient has established his independent economic activity, the place of performance is the place where this establishment is located. When there is no place of establishment of independent economic activity or permanent establishment, the place of delivery is the place of permanent address or habitual residence of the recipient.Art. 21, par. 2 of the Bulgarian Law on the VAT
So there are basically three scenarios when Bulgarian company provides services to a Swiss company:
The general case
The general case is, by default, that the place of the transaction is in Switzerland. This is of course if the following two scenarios are not applicable.
When the services are provided in a specific place, outside of Switzerland
It can be for instance that the services are provided in a different location. For example, the Bulgarian company may be sending engineers to install some specific equipment for the Swiss company’s project in another country. If this is the case, then the transaction is considered to have taken place in this particular country and not in Switzerland.
No place of establishment
It can be (in theory) so that the Swiss company doesn’t have place of establishment of its economic activities. Although quite rare, the company Swiss company may have no office in Switzerland. In this case, the place of the transaction is considered to be its place of registration (permanent address or habitual residence) – Switzerland.
Sounds confusing? Especially the third hypothesis above. It certainly is. But what we can say is that unless the services are provided on a specific place, outside of Switzerland, the place of the transaction is considered to be Switzerland. And if this is the case, then the Bulgarian company should not invoice any VAT to its Swiss counterpart, as the transaction is outside of Bulgaria.